Saturday, September 8, 2012

Shriram City Union Finance NCD

Shriram City Union Finance, a non banking finance company, has come out with a public issue of secured non convertible debentures of face value of Rs 1,000 each aggregating up to Rs 250 crore with an option to retain over-subscription up to Rs 250 crore for issuance of additional NCDs aggregating to a total of up to Rs 500 crore. The company is in the business of lending and financing mainly two-wheelers and consumer goods. It also has a book of personal loans and gold loans for individuals and small enterprises.

The issue shall open on 12 September, 2012 . 80% of the issue is reserved for individual investors—retail and high networth.

The bonds are also available across two tenors, three and five years. The interest rate is 11.5% for 3 years tenor and 11.75% for 5 years tenor. For both tenors, there is an option for annual payment and cumulative payment.

The company proposes to utilize the funds raised through this issue various financing activities including lending and investments. The funds would also be used to repay the company’s existing loans; for business operations including capital expenditure and working capital requirements.

JM Financial Institutional Securities Private Limited, A K Capital Services Limited and Edelweiss Financial Services Limited are the lead managers to the issue while Integrated Enterprises (India) Limited is the registrar to the issue. The NCDs will be issued in Demat form and are proposed to be listed on the NSE and the BSE.

Recommendation:

The NCDs proposed to be issued under this issue have been rated 'AA' by CARE for an amount of up to Rs 500 crore, and 'AA-/stable' by CRISIL for an amount of up to Rs 500 crore. The rating of the NCDs by CARE indicates high degree of safety regarding timely servicing of financial obligations and carrying very low credit risk and the rating of NCDs by CRISIL indicates high degree of safety regarding timely servicing of financial obligations and carrying very low credit risk. After India Infoline Financial Services Ltd’s unsecured bonds offering 12.75% per annum, Shriram City Union Finance Ltd has hit the market with a public issue of secured NCDs offering 11.75% per annum. The lower interest rate compensates for the secured nature of the Shriram City NCDs. The interest rate is definitely attractive and beats returns from bank as well as company fixed deposits but don't over allocate your funds on such NCDs as it still has some element of risk.


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